GST is perhaps the most important economic tax reform in recent times. With the Goods and Services Tax bill, the Government aims to create a uniform tax structure across the country. Automobile manufacturers are divided over the implications of GST on car and bike prices. The implementation of GST will affect each segment differently. Most buyers are currently facing a similar dilemma – “Should I buy car after GST?” Let’s take a look at how car and motorcycle prices might be affected following the implementation of GST. Many of you might also be wondering – “How will GST Affect Car Price?”. We will try to answer all these questions in this post here.
Also See – Effect of Demonetisation on Car Sales
What is the Current Tax Structure?
Right now, there are multiple taxes imposed on a product at the Central and State level. Excise duty is imposed at the factory level based on a classification specified by the Government. Sub 4 meter cars attract the lowest duty of 12%.
For calculating Ex-Factory Price
- Excise Duty – 12% to 27%
|Excise Duty||12%||Small Cars less than 4 Meter in length|
|24%||Cars with Length more than 4 Meter but Engine capacity less than 1.5 Litre|
|27%||Cars with Engine capacity more than 1.5 Litre|
- Infrastructure Tax – 1% to 4%
|Infrastructure Cess||1%||Petrol Cars with engine capacity less than 1.5 Litre|
|4%||High Capacity Cars|
For calculating Ex-showroom Price
- VAT Duty – 12.5% to 14.5%
- Octroi / Entry Tax – 4% to 6% (Applicable in Certain States)
For calculating On Road Price
- Road Tax – 3% to 24%
All this means the on road prices of cars across various states vary greatly depending on the state level tax structure. So, will GST mean the price of a particular car be uniform across the country? Yes and No. We shall explain that in the next section
Will Cars Cost Less After GST?
Since GST proposes a more unified tax structure, car makers will be able to charge a uniform price across the country. Which means ex-showroom prices of vehicles across India will be the same. However, GST does not subsume taxes such as road tax, which varies across states. This means on-road price across the country will not be the same. Small cars will fall under the 28% GST slab. There will be an additional 1% or 3%. Which means there will be a slight increase in the prices of small cars (hatchbacks, compact sedans, compact SUVs). The price difference between diesel and petrol variants will also increase. Mid-size cars (length greater than 4 m, engine smaller than 1500cc) such as Maruti Ciaz will cost more or less the same. However, while luxury cars will also fall under the 28% tax slab, an additional 15% cess will be imposed on them to ensure the Government does not incur major losses in revenue. Despite the additional cess, premium luxury cars will attract less tax, which means they will get cheaper.
|SMALL CARS PETROL||28% + 1% cess|
|SMALL CARS DIESEL||28% + 3% cess|
|LUXURY CARS||28% + 15% cess|
The Finance Minister has stated that the maximum tax levied will be 40%. In a bid to push electric vehicles, the Government has ensured they fall under the lowest tax bracket of 12%. However, rather surprisingly, hybrid vehicles have been kept in the highest bracket (28% + 15%). This is a big setback for manufacturers in India who have been planning big investments towards the introduction of energy-efficient hybrid vehicles.
So Should I Buy a Car After GST?
The implementation of GST will affect each segment differently. Since sub 4 meter vehicles already enjoy excise benefits. Implementation of GST will lead to an increase in the price of these models. The effect on the prices of mid-segment cars such as the Ciaz and City will be negligible. However, luxury cars and SUVs will get cheaper, while the biggest beneficiary will be hybrid vehicles. So, it might make sense to hold off that car purchase in case you were planning on getting yourself a luxury car/SUV. However, mass market cars won’t benefit from the introduction of GST. Also, cost of spares and servicing is set to go up post the introduction of GST.
|GST||28% + 1% or 3% cess||GST on Small Cars|
|28% + 15% cess||Mid-Size cars, Luxury Cars/SUVs|
|28% + 15%||Hybrid vehicles|
Road tax – 3% to 24% (Different for every state)
Stay tuned to Car Blog India for more updates on GST and its effect on car and bike prices. Do you think the introduction of GST will be beneficial to car buyers? Do let us know via the comments section below.
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